Reform tends to be slow and as the voting population ages, it becomes increasingly resistance to pension reform. The details of reform vary considerably from country to country, but the general principles are the same: increase the retirement age so as to increase the number of years of tax paying; reduce the number of years of claiming a pension; and target pensions more to those with low incomes and assets.
Across the OECD a total of eighteen countries have raised the retirement age for women, and fourteen have done so for men. However to date these increases are at a modest pace: 2.5 years for men and 4 years for women between 2010 and 2050. That is slower than the projected increase in life expectancy and so we expect this trend of pension reform to continue or accelerate.
If you are a high earner, it is also important to realize that the state will play a smaller role in your pension provision going forward.

…

If you are a high earner, it is also important to realize that the state will play a smaller role in your pension provision going forward. For example, in 2000 a wealthy UK pensioner could expect a state pension worth more than 35 per cent of their final salary; by 2060 that will be only 20 per cent.
If state pension reform is slow, changes in corporations’ occupational schemes have, in contrast, been rapid. Pensions are expensive to run and not something most firms are good at, and increasing longevity has made company pension schemes a major financial liability. The result is a dramatic decline in the number of such schemes, while existing schemes are already closing their membership to new workers. In 1987 in the UK, for example, there were 8.1 million members attached to occupational pension schemes in the private sector; by 2011 that number had fallen to 2.9 million.7 In the US, the number of employees with access to defined benefit pensions declined from 62 per cent in 1983 to 17 per cent by 2013.8 Furthermore, even among those schemes that survive, many are reducing their generosity in order to achieve financial sustainability.

…

Jimmy: The three-stage life is stretched
We now turn our attention to Jimmy, who was born in 1971 and has a life expectancy of 85.9 We are investigating the finances behind a three-stage life, so we assume that Jimmy graduated from college aged 21 in 1992 and intends to work until he reaches the age of 65 in 2036. Like Jack, he wants to achieve a pension worth 50 per cent of his final salary. However, we will make one key change for Jimmy: our calculations are based on the assumption that he does not have access to a company pension scheme. Despite the state pension reforms we mentioned above, we will continue to assume that he receives a state pension worth 10 per cent of his final salary.
Figure 2.3 shows the financing requirements for Jimmy. Whereas Jack had to save 4.3 per cent of his income every year to retire at 65, Jimmy has to save 17.2 per cent each year. Balancing is much trickier for Jimmy. He doesn’t have the benefit of a company pension and so he has to finance twice as much of his pension, and, unlike Jack, he works for forty-four years and retires for twenty.

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22 Days in May: The birth of the Lib Dem - Conservative coalition
by
Laws, David

A Lib–Lab government would be distrusted by the markets, and it would be vital to show we could deliver on deficit reduction.’
I said that there were some clear ways in which we could demonstrate credibility, for example, we could establish a commission to review the affordability and fairness of public sector pensions. Danny said that this could be established on similar lines to Adair Turner’s very successful commission on the state pension reforms.
Peter Mandelson and Lord Adonis looked sympathetic, enthusiastic even. But Ed Balls, Ed Miliband and Harriet Harman recoiled in horror, and competed to look shocked, horrified, and as if a rather unpleasant odour had assaulted their senses.
Not only was the Labour team clearly divided in its attitude to talks, but some interesting old/new Labour divisions were emerging during the policy discussions too.

…

Ed Balls muttered: ‘This would be very bad for credibility, because we couldn’t do it.’ Harriet Harman said: ‘What if we fail to convince the markets, while panicking our people on public services?’
‘Look, these are only the first tough decisions we are going to have to take to reduce the deficit – even on your spending plans,’ I said. ‘We are going to have to take action in areas such as public sector pensions reform, too.’
Ed Miliband looked horrified: ‘Oh no,’ he said. ‘We cannot go further than our existing agreements with the unions.’
‘That sounds like a line from your Labour leadership campaign!’ joked Danny. Ed Miliband tried to look mystified.
There was a long pause. Ed Balls looked determinedly grumpy. Peter Mandelson looked a little confused. I felt that we were getting a glimpse not merely of the differences of view between Labour and the Liberal Democrats, but of some of the deep-seated divisions over spending, taxation and the deficit within the Labour Party.

…

But the problem was that the economy is rather an important area in policy terms. To me, for whom these issues were of central importance, it seemed rather like telling a chef that his food was shockingly bad but that the tablecloth was beautifully ironed.
The truth was that we had no agreement on delivering a £10,000 personal tax allowance. We had no agreement on funding the pupil premium. We had no agreement on a banking levy, or on public sector pensions reform, or on restoring the pension earnings link. We had no agreement on a strategy for deficit reduction, and no agreement on spending. All of that meant that we were nowhere near being able to conclude a coalition agreement.
Meanwhile, we could not know if a Lib–Lab minority coalition could command the support to survive in the House of Commons, or even deliver the Labour votes necessary to push through a referendum on AV.

In 1980, just seven years after the coup, Pinochet conceded a new constitution that prescribed a ten-year transition back to democracy. In 1990, having lost a referendum on his leadership, he stepped down as president (though he remained in charge of the army for a further eight years). Democracy was restored, and by that time the economic miracle was under way that helped to ensure its survival. For the pension reform not only created a new class of property-owners, each with his own retirement nest egg. It also gave the Chilean economy a massive shot in the arm, since the effect was significantly to increase the savings rate (to 30 per cent of GDP by 1989, the highest in Latin America). Initially, a cap was imposed that prevented the AFPs from investing more than 6 per cent (later 12 per cent) of the new pension funds outside Chile.65 The effect of this was to ensure that Chile’s new source of savings was channelled into the country’s own economic development.

…

The growth rate in the fifteen years before Friedman’s visit was 0.17 per cent. In the fifteen years that followed, it was 3.28 per cent, nearly twenty times higher. The poverty rate has declined dramatically to just 15 per cent, compared with 40 per cent in the rest of Latin America.68 Santiago today is the shining city of the Andes, easily the continent’s most prosperous and attractive city.
It is a sign of Chile’s success that the country’s pension reforms have been imitated all across the continent, and indeed around the world. Bolivia, El Salvador and Mexico copied the Chilean scheme to the letter. Peru and Colombia introduced private pensions as an alternative to the state system.69 Kazakhstan, too, has followed the Chilean example. Even British MPs have beaten a path from Westminster to Piñera’s door. The irony is that the Chilean reform was far more radical than anything that has been attempted in the United States, the heartland of free market economics.

Private pensions were then the rage, for those who could afford them; others assumed their company schemes would provide; for the rest, the state minimum. Labour presided over an awakening. Occupational schemes had miscalculated the length of time they would have to pay out to pensioners surviving for longer and longer. Private pensions had been mis-sold, both literally to those induced to opt out of the state schemes and figuratively to those who had believed the patter about them paying off.
In a parallel universe, pension reform might have been Labour’s forte. All pensions systems ultimately had to be social democratic; even the most ironclad free marketeer had to accept the need for state provision and tight regulation. But if reforms were to last, a measure of bipartisanship was needed. Things started badly when Labour were accused of damaging private pension funds in 1997 by adjusting a tax break on corporation tax.

…

With hindsight it probably was mildly damaging, but the funds’ rhetoric was overblown. So, too, were persistent allegations that pension entitlements being racked up by public-sector staff were over-generous. But the state was accumulating hundreds of billions in liabilities and the government obfuscated when it might have fought prejudice with facts about the relative remuneration enjoyed in public and private sectors and the small average size of public-sector pensions. Reforms were needed but Labour went AWOL.
The biggest question confronting an ageing society was similar to that posed by Sir Nicholas Stern over climate change: how much would people cut consumption in the here and now for the sake of tomorrow? It was not one likely to be tackled by a government that believed its political fate depended on keeping the fires burning. The choice was either to save more now or extend working lives.

…

It was not compulsory to join the scheme – but it was reckoned inertia would ensure few people would opt out. The age of retirement would probably need to keep rising faster, with a review every four years to make sure pensions were keeping up with life expectancy. Later on, Labour tried to inject more equity into pensions by stopping the tax deductibility of pension contributions for those on higher earnings from 2011.
Labour’s principal pension reforms were meant to address inequality. They introduced a future pension entitlement aimed at carers, disabled people and the low paid who had failed to accrue regular National Insurance pension rights. As many as twenty million people could gain extra post-retirement income in future if this reform were to stick.
The Blair–Brown rivalry played out over pensions policy. If Tweedledum could win praise over child poverty, Tweedledee determined to earn his by promising to end poverty among pensioners.

The pension burden can also be cut by reducing the extent of inflation-linking. Britain has already made this move, announcing that public-sector pensions will increase in line with the consumer price index, rather than the retail price index. The former tends to rise by around 0.7 per cent a year less than the latter. This change may reduce the government’s pension bill by 10 per cent or so.
Indeed the proposed British pension reforms for the public sector involved a combination of different measures – as well as a change in inflation-linking, the government also planned to make public-sector workers retire at the state pension age (rather than at sixty), switch them to career-average schemes and increase the level of their contributions. This quadruple whammy prompted a strike in late June 2011 and further disputes looked inevitable.

The shift to the defined-contribution scheme affected the take-home salaries of civil servants without creating an uproar—an unimaginable political win.
But once the government changed after the unexpected election rout of the NDA government in May, the progress toward the pension reform came to a standstill. While it got Chidambaram’s support, he was bent on getting legislation introducing the pension regulator through parliament, which stalled when the left parties opposed it. Chidambaram waited and finally, in exasperation at two and a half years of stalling, decided to start work on the scheme without legislation. The opponents of the bill have been furious with the finance minister ever since and have labeled it “Chidambaram’s pension reform,” implying that he is working on it without the parliament’s aye.
With all the committee meetings and changes in government, Gautam says, “The NPS reforms have got delayed by a decade.”

…

“There was a familiar tendency among company management to make long-term promises they did not have to fulfill personally,” Marty says. “They made these promises without an idea where their revenues would stand. In some ways, these disasters were inevitable.”
Our great, big growth advantage
As Surendra Dave notes, one of the first things the Indian economists in the committee working on pension reforms did was study the failure of these social security systems in the West. India, in shaping a universal social insurance scheme so late in the game, had a great opportunity to survey the disasters gone past and frame a better policy.
At the very least, the challenges developed markets are facing around pensions and social security tell us “what not to do”—which mechanisms, for example, trigger health carelessness, low savings and high future taxes.

…

In 2004 the Indian government, with the Sensex at 5,000 points, proposed that 10 percent of pension funds be pumped into equities. We entered 2008 with the stock market having risen more than three times that, but with the shift yet to be made. Even after its steep falls in September 2008, a fund that had invested money in 2004 would have turned in good returns. The stock market is expected to touch $5 trillion by 2020, and we are still stalling.
A BIG CHALLENGE to pension reforms and a sustainable social security policy is the danger of politics creeping in. What our experiences and those of developed markets make clear is that a universal scheme, to be effective and sustainable, must be insulated from political compulsions as much as possible. Otherwise, long-term funds become easy prey for election-minded governments and end up getting tweaked and changed and overhauled, especially in times of low growth.

Teachers, firefighters, and cops quickly joined the nurses protesting at my public appearances. Every time I arrived at an event, they’d be out there, waving signs, booing, chanting, and ringing cowbells. The unions formed coalitions with names like the Alliance for a Better California and started pouring millions of dollars into TV and radio ads. One commercial featured a firefighter who was convinced that my pension reforms would take away benefits to widows and orphans. Another showed teachers and PTA members saying how disappointed they were with me for trying to put California’s budget troubles on the backs of the kids.
The heat of the protests surprised me, but the reforms were too important to give up. My spokesman told the press, “Our door will be open twenty-four hours a day to any Democrat who is serious about negotiating.

…

I coaxed legislative leaders of both parties to go along with me, and they all paid a price. The Democrats, senate leader Darrell Steinberg and assembly speaker Karen Bass, made themselves wildly unpopular with the liberals by agreeing to support open primary elections as well as even more welfare reforms—removing things like automatic cost of living increases. They enraged the public-employee unions by agreeing both to pension reform and to another condition I insisted on: the creation (at last!) of a strict rainy-day fund that could be used only in a true emergency. The Republican leaders paid an even higher price. The party stripped State Senator Dave Cogdill of his leadership position the night of the vote and forced Mike Villines, the assembly Republican leader, out of his post a few weeks later—all because they had accepted a compromise that included a tax increase.

…

I was disappointed when I learned that my successor, Governor Jerry Brown, signed a bill to remove those reforms from the 2012 ballot at the behest of Democrats and labor unions. The polls had shown it headed for a landslide victory this time, with 84 percent planning to vote yes, according to the reform group the Think Long Committee for California. In the end, politics as usual produced a tax increase with no real safeguards to restrict further spending. And now the budget reform initiative will not be voted on until 2014.
In the fall, I signed a historic pension reform that rolled back some of the worst excesses threatening to bankrupt the state. By cutting a lot of red tape, we issued permits for so many solar power plants in California—more than 5,000 megawatts in 2009 alone (one hundred times all the solar permitted in the United States a year earlier)—that California was being called the Saudi Arabia of Solar. California is now on track to build not just the most but also the largest solar projects in the world.

As a minimum, they would need to be strictly prohibited from doing
private business with or taking favors from investment managers. There
are plenty of examples from other countries to copy: the US individual
retirement account system is based on the Chilean pension reform of
1980/81 that in turn was based heavily on proposals made in the book
Capitalism and Freedom by Milton Friedman. In response to the Chilean
system facing a likely collapse in a few decades time, it was substantially
overhauled in 2008 to require mandatory participation of all citizens
in exchange for universal pension coverage. Another example is that
of Sweden, which enacted a series of very famous pension reforms in
58
ECONOMISTS AND THE POWERFUL
1998 followed by reﬁnements in 2010 – there an individual’s personal
retirement account defaults to an age-determined mix of an equity
index tracking fund and a ﬁxed income fund, but that can be switched at
any time into any other investment by its owner.

The reason for America’s prolificacy could also be that pensions in the United States are particularly stingy, making kids more useful as old-age insurance. A typical worker in the United States receives as little as 40 percent of his or her last wages from Social Security. European pensions are more generous. In Italy, fertility started rising slowly in 1996 after plummeting for ages. Perhaps not coincidentally, that was the year in which pension reform kicked in, reducing the payments promised to younger workers from 80 percent of their last wage to only 65 percent. Indeed, economists found that the odds of having a kid rose 10 percent for those workers who had their pensions cut, relative to those who hadn’t.
But the most convincing explanation seems to be that the United States has been better at accommodating work and childbearing than other nations.

…

storyId=102005062&ft=1&f=1001, accessed 07/18/2010). Data on government pension replacement rates and their impact on fertility comes from Olivia S. Mitchell and John W. R. Phillips, “Social Security Replacement Rates for Alternative Earnings Benchmarks,” University of Michigan Retirement Research Center Working Paper, May 2006; and Francesco C. Billari and Vincenzo Galasso, “What Explains Fertility? Evidence from Italian Pension Reforms,” CEPR Discussion Paper, October 2008. Arguments about work’s impact on fertility in Europe are drawn from Bruce Sacerdote and James Feyrer, “Will the Stork Return to Europe and Japan? Understanding Fertility Within Developed Nations,” NBER Working Paper, June 2008; and Samuel Preston and Caroline Sten Hartnett, op. cit. Evidence of the financial benefits of marriage is found in Martin Browning, Pierre-André Chiappori, and Arthur Lewbel, “Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power,” Economics Series Working Paper, Oxford University Department of Economics, August 2006; Graziella Bertocchi and Marianna Brunetti, “Marriage and Other Risky Assets: A Portfolio Approach,” CEPR Discussion Paper, February 2009; Libertad González and Berkay Özcan, “The Risk of Divorce and Household Saving Behavior,” IZA Working Paper, September 2008.

In this book, we will try to see whether it lives up
to its claim, and how well it will stand a market downturn. I will explain how
the London insurance market, including Lloyd’s, works. There is a new chapter
on reinsurance, which covers the impact of catastrophes such as Hurricane
Katrina in 2005, and how insurers have started to tap capital markets for extra
reinsurance capacity.
In personal ﬁnance, we will take a critical look at pension reform, and controversies related to sales of payment protection insurance. We look at current
thinking on mortgages. Elsewhere, we compare types of pooled investment.
Since the ﬁrst edition was published, regulation and corporate governance
have evolved, and this book covers how they work today. We focus on the role
of the Financial Services Authority and the development of its principles-based
regulatory regime, which is not always helped by the onset of EU ﬁnancial
services legislation.

…

As an employee, you are included in the state second pension, unless you
contract out, which is to give up the entitlement and build up a sum instead in
your own pension fund. HM Revenue and Customs rebate part of your National
Insurance contributions into your personal pension. You are free to contract
back in.
State pension package
The Pensions Act 2007, which received Royal Assent in July 2007, is mainly
about state pension reform. It has three strands.
People will receive the state pension later than before. This will be on a
phased basis. In 2024–26, they will start taking the pension at the age of 65–66,
and in 2034–36, they will start at the age of 66–67. In 2044–46, they will take
it at the age of 67–68 years.
The basic state pension rises every year with the Retail Prices Index. From
2012 or slightly later, it will rise instead by earnings, which should make the
pension more generous.

However, while this should make them interested in states being, if not debt-free, then reliably able to fulfil their obligations to their creditors, it may also mean that they have to pay for their government’s liquidity in the form of deep cuts in public benefits and services on which they also in part depend.
However complicated the cross-cutting cleavages in the emerging international politics of public debt, the price for financial stabilization is likely to be paid by those other than the owners of money, or at least of real money. For example, public pension reform will be accelerated by fiscal pressures; and to the extent that governments default anywhere in the world, private pensions will be hit as well. The average citizen will pay – for the consolidation of public finances, the bankruptcy of foreign states, the rising rates of interest on the public debt and, if necessary, for another rescue of national and international banks – with his or her private savings, cuts in public entitlements, reduced public services and higher taxation.

…

This process is expected to continue, assisted by deep changes in political-economic institutions which, for example, prevent the central bank from accommodating an expansionary fiscal policy:
The medium-term financial forecast of the Swedish government for the years 2013–2015 projected surpluses of up to three percent of GDP … The estimated annual surplus is up to three percent of GDP. The improvement of the budget balance would be achieved solely by expenditure cuts and not by revenue increases.59
The economic downturn after 2011 did not cause a rethinking of fiscal priorities. Transition from high to low taxing and spending was accomplished, among other things, by a pension reform (1994/1998) that has made the pension system ‘completely independent financially from the budget. There is no longer any cross-subsidization from the public purse to the pension funds’ (ibid.: 17). In spite of the fiscal surplus, pensions were cut in 2010 and will be further cut in future, in line with expected shortfalls in revenue due to demographic change. There also was what was called the ‘tax reform of the century’ in 1990 and 1991, which contributed to the fiscal crisis of the early 1990s and helped justify the subsequent cuts in public expenditure.

The
media picked up the issue as well; an NBC Reports special that aired
in 1972 called “Pensions: The Broken Promise” received abundant
press and was viewed widely across the country, spotlighting the issue
during a divisive congressional battle over pensions.30 Together, these
events and the ensuing media coverage helped garner political support
for pension reform.
Given their involvement in the early pension problems, the United
Auto Workers (UAW) had an interesting position on the subject of
pension reform. On the one hand, the UAW did not, of course, want
to see labor suffer when ﬁrms were facing dire ﬁnancial straits. On the
other, because it had often pushed for retroactive increases in pension
beneﬁts, it did not necessarily want to require full funding of plans at
all times because that would increase the push back against the UAW’s
negotiation of more pension beneﬁts, since the ﬁrm would be required
to make an immediate cash outlay to meet the liability after new beneﬁts were set.31 The thrust of the UAW’s push for reforms was to
establish pension reinsurance more than it was to create requirements
for fully funded pension plans.
112
Investment: A History
Congress responded with efforts from a variety of committees.

During the 2008-2009 fiscal year, the pension fund lost 31 percent, prompting officials to claim that they would never be able to meet liabilities. Because of the inherent complexity and subjectivity associated with calculating the funding levels for pension funds, the true costs are often disguised in the near-term (see box on page 7).
The shortfall associated with underfunded pensions can be made up by either investment performance or pension reform (i.e., changing the structure of the pension in some way). Yet pension reform amounts to fiscal tightening at a time when the global economy is weak and personal budgets are stretched. At the same time, these decisions are made by politicians, whose tenure in office does not compel them to make difficult, long-term decisions. Because voters do not opt for more tax or less benefits, the problems are often ignored, growing bigger by the day.

pages: 409words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy
by
Marc Levinson

On the appeal of social spending to economic planners, see Hans-Peter Ullmann, “Im ‘Strudel der Maßlosigkeit’? Die ‘Erweiterung des Staatskorridors’ in der Bundesrepublik der sechziger bis achtziger Jahre,” Geschichte und Gesellschaft 22 (2006): 255–263, and Werner Ehrlicher, “Deutsche Finanzpolitik seit 1945,” VSWG: Vierteljahrschrift für Sozial-und Wirtschaftsgeschichte 81 (1994): 10–19.
19. On the changes in Italy, see Daniele Franco, “A Never-Ending Pension Reform,” in Martin Feldstein and Horst Siebert, eds., Social Security Pension Reform in Europe (Chicago: University of Chicago Press, 2002), 213–214.
20. Data on food stamps from US Department of Agriculture Food and Nutrition Service, at www.fns.usda.gov/sites/default/files/pd/SNAPsummary.pdf, viewed June 1, 2015.
21. The average retirement age for women in the OECD countries fell from 63.4 years in 1970 to 61.4 in 1980; the average retirement age for men in OECD countries dropped from 65 years to 63.3 during the same time period.

Two years into his tenure, in mid-2005, he’d tried everything he could think of to persuade individual California state legislators to vote against the short-term desires of their constituents for the greater long-term good of all. “To me there were shocking moments,” he says. Having sped past a DO NOT ENTER sign, we are now flying through intersections without pausing. I can’t help but notice that, if we weren’t breaking the law by going the wrong way down a one-way street, we’d be breaking the law by running stop signs. “When you want to do pension reform for the prison guards,” he says, “and all of a sudden the Republicans are all lined up against you. It was really incredible and it happened over and over: people would say to me, ‘Yes, this is the best idea! I would love to vote for it! But if I vote for it some interest group is going to be angry with me, so I won’t do it.’ I couldn’t believe people could actually say that. You have soldiers dying in Iraq and Afghanistan, and they didn’t want to risk their political lives by doing the right thing.”

These are
out of reach for the majority in the private sector who are paying for
the pensions in the public sector.
70 Britannia Unchained
Overall, 40–45 per cent of adult lives are now spent in retirement
compared to roughly 30 per cent in the 1950s. The balance between
the years we spend in work and the years we spend in retirement has
grown unbalanced. So, while the Unison union bemoans the ‘Great
Pension Robbery’, the reality is that their campaign to frustrate
pension reform would be socially unjust, by loading up more debt or
higher taxes for the next generation to pay off.
A further factor undermining the British work ethic is the rise of
welfare dependency. The postwar welfare state was designed as a safety
net to help the poorest and most vulnerable. It has ballooned beyond
all recognition, corroding the UK work ethic. Based on research into
European unemployment levels, Jean-Baptiste Michau at the London
School of Economics argues that ‘the expansion of the scope and size
of the unemployment beneﬁts system that occurred after the Second
World War decreased the returns from having a strong work ethic’.36
In Britain, there has been a massive rise in welfare dependency.

CAPITAL MARKETS TAKE OVER
The same decade that saw the banking industry enter its perfect storm
saw the beginning of the longest bull market in Wall Street history.
The 25-year bull market that ended in 2008 coincides with a vast
increase in pension fund assets under professional management.
Some of this merely reflects demography as the Baby Boomers began
to accumulate wealth. The Employee Retirement Income Security Act
(ERISA) pension reforms of 1974 and the implementation of tax
The Natural History of Financial Folly
deferred personal pension plans, 401(k)s, in 1981 were key factors.
The 1982 bipartisan commission on Social Security chaired by Alan
Greenspan and Daniel Patrick Moynihan led Congress to raise payroll
taxes and retirement ages in 1984, but the need for personal retirement savings became widely recognized. At the same time, corporations were anxious to shift the burden of retirement plans on to their
employees. 401(k) plans are defined contribution schemes in which
the plan sponsor is not responsible for providing a specified future
benefit like a traditional pension.

Indeed, in their first encounter with the European semester, several national leaders, even those normally thought of as pro-European, went out of their way to criticise the Commission for its intrusiveness. Spain’s Mariano Rajoy announced in 2012 that it was for his government, not the Commission, to decide the right level of the Spanish budget deficit. In France, Hollande early on declared that, while the Commission was within its rights to demand pension reform, his government should be left to decide what sort of changes to make and how quickly to make them. The Italian government rejected a criticism of its longer-term debt sustainability. And when Belgium, the most pro-European country of all, was rebuked over its budget deficit, one Belgian government minister asked aloud: “Who is Olli Rehn?” (the economic-affairs commissioner).5
Yet it is too simple to see the problem as merely one of excessive Commission interference in matters better left to elected national governments.

The fault here is not with numbers and the inevitable way that they must bully reality into some semblance of orderliness. It is with people, and our tendency to ignore that this compromise took place, while leaping to big conclusions.
Is this a mere tabloid extravagance? Not at all: it is commonplace, in policymaking circles as in the media.
When, amid fears of a pension crisis, the British government- appointed Turner Commission published a preliminary report in 2005 on the dry business of pension reform, it said 40 percent of the population was heading for “inadequate” provision in retirement. With luck, your definitional muscles will now be flexing: what do they mean by “inadequate”?
In reaching that 40 percent figure—a shocking one—the Commission had said each to their own resources: either you have a pension or you don’t, a hard-and-fast definition like the interpretation in the yob survey of the law on assault, in or out but nothing in between, covered or not, according to your own and only your own finances.

Itwas the biggest workers' protest for over a generation. Here was a cross-section of the modern British working class, hundreds of thousands strong, standing up to a government that was forcing them to pay for a crisis they had no role in causing.
The protest marked the beginning of a new wave of trade-union resistance. After assuming office, the Conservative-led government announced so-called reforms to public sector pensions-'reforms' being a term that had long since changed in meaning from 'social progress' to 'rolling it back'. Arguing that public sector pensions were becoming unaffordable, the government unveiled plans to make workers pay more and work longer for their pensions and receive less. Yet a recently commissioned Government report written by ultraBlairite ex-Labour Minister John Hutton revealed that public sector pensions would fall as a proportion of Britain's economy: in other words, they were set to become more affordable.

A large body of psychological research suggests that these preoccupations are associated with increased rates of mental illness, including depression, substance abuse, anxiety and personality disorder.4 Less dramatically, and anecdotally, we can live in a prosperous economic environment, and still discover that modern life is rubbish. So how can a better understanding of economics help?
Talk of improving quality of life might provoke expectations that the following chapters include detailed discussions of integrated transport policies, pension reforms and endogenous growth theory. In other words, the kind of policy wonkery which few of us care passionately about. But we do care about the principles at stake - whether it is fair to tax the rich more highly, whether environmental damage can be boiled down to a sum of money, whether surveys can really measure our quality of life or happiness. This book is about these principles. Black box economics obscures them.

She has since taken her idea to the states, where, she said, the influence of the mutual fund industry is less strong than in Washington. She advocates opening up the state pension systems to private workers, a proposal recently endorsed by both New York City comptroller John Liu and California state treasurer Bill Lockyer. “What I’m thinking is that it would be a very smart political and policy move by those who want to keep defined-benefit public pensions to link the move for pension reform to a demand for a meaningful retirement-security option for California private sector workers like the one proposed by Dr. Ghilarducci,” Lockyer said in a recent speech.
The interest of state government officials points to the real reason Ghilarducci is viewed as the wicked witch by more than a few in the financial services industry. The Guaranteed Retirement Accounts could bring new players into the general retirement industry, new players like the state pension funds and the institutional and hedge funds they invest their money in, players with power to challenge the stranglehold the mutual fund industry and other retail-investment arms currently have over our retirement savings via the 401(k), an instrument that serves their bottom line more than the ones of the workers it is supposed to be benefitting.

Reduced oil revenue and the need to increase public expenditure on
account of El Niño, together with the inflexibility of public expenditure,
combined to increase the public deficit. The authorities simply could not
reprogram expenditure sufficiently in response to their changed priorities.
Three additional aspects of Ecuador’s public-sector structural-reform
agenda go beyond the government budget narrowly defined. These are
(a) the need for pension reform, (b) the issue of political and administrative decentralization, and (c) the lagging privatization of publicly owned
assets.
Like many of South America’s older national pension systems,
Ecuador’s pay-as-you-go social-security system has become financially
unviable, and a fundamental reform, like those of Chile, Bolivia,
Argentina, and Peru, is clearly necessary. Since the mid-1980s, in addition
to contributions for its own staff, the central government has been providing a subsidy to the IESS (the Instituto Ecuatoriano de Seguro Social, that
is, the Ecuadoran Social Security Institute) covering 40 percent of pension
payments due as well as certain specific pension deficits, including those
of the national police and armed forces.

In fact, research shows that digital activism, when it leads to street protests, is usually nonviolent.12
Strange protests like the one I attended don’t happen just in Azerbaijan. They aren’t all as abstract as the ones in Minsk.13 They happen in Havana. In the final days of Burma’s military junta, they happened there, too. What is common is a rising level of innovation in protest strategy. Russia’s Pussy Riot does aggressive culture jamming. In Ukraine, the Femen network of young women bare their breasts in public but then talk about pension reform. The Russian art collective Voina painted a two hundred–foot penis on a Saint Petersburg drawbridge to protest heightened security. Ukrainian activists launched a Kickstarter campaign to buy themselves a “people’s drone” that would let them watch Russian troop movements in their country.14
The internet of things is putting tough regimes into digital dilemmas on a regular basis, because leaders have to choose between two equally distasteful actions.

The Harvard historian Niall Ferguson argues, “Thatcher and Reagan came later. The backlash against welfare started in Chile.”8 Awkwardly for those who like to believe that political and economic freedom are indivisible, the Chilean reforms were launched after a military coup that overthrew the leftist government of Salvador Allende in 1973. Chile’s policies of slashing tariffs and taxes, inflation fighting, privatization, and pension reform were regarded as a model by free-market reformers around the world. But they took place against a background of the imprisonment, torture, and murder of dissidents.
General Pinochet’s embrace of the market and assault on inflation came in 1975, after a visit by Milton Friedman, the doyen of the Chicago school of economists, who was to receive the Nobel Prize for economics the following year.

His scheme ‘should be
viewed as the first, hopefully, of a number of schemes where social and individual efforts are collectivised in a manner acceptable to voters’. Collectivised or not, it also manifests self-help philosophy in a way that is equally acceptable to right-wing politicians.
All that remains is for political leaders to sell this idea to the voters. In
individualist Britain and America it should not be difficult. In continental
Europe the task looks likely to be much harder, despite the greater urgency of
pension reform. Most Europeans see pensions as falling firmly within the
domain of the state although they would probably not vote for the tax increases necessary to close their pensions deficit. Such is the passion about state
provision of pensions that German, Italian and French citizens have demonstrated on the streets to defend it. Indeed, two million German civil servants
marched in protest at the suggestion that they should merely start to contribute directly to their own pensions for the first time, foregoing 0.2 per cent of
their annual wage increase from the year 2001.

An Australian gaming group proposed a new lottery, known as Set for Life, to tap into customers’ dreams of giving up working; the prize was A$20,000 a month for twenty years.
People will have to live for a shorter time, survive on less, save more, or work longer. Unable to build adequate savings, and with an inadequate social safety net, retirement will become a luxury available to only a small part of the population. Many workers will have to work as long as they are physically capable or until death. Spanish pension reforms termed it “active aging.” Most will find kinship with singer Annie Lennox's song “Cold,” where she confessed that dying was easy but living scared her to death.
The existing economic model also creates intergenerational issues because of its reliance on deferring economic, resource, and environmental adjustments into the future. In each area, short-term gains have been pursued at the expense of risks and costs that only emerge later, entailing a transfer of wealth from the future to the present.

So between 2001 and 2009, Atlanta’s unfunded defined-pension obligation grew from $321 million to $1.484 billion. Reed couldn’t cut existing pensions without lawsuits, but he reduced pensions for all new employees to pre-2000 levels and raised the vesting period from ten to fifteen years. When union members picketed city hall, Reed invited them all into his office—in shifts—and patiently explained, with charts and spreadsheets, that without pension reform everyone’s pensions would eventually go bust. By getting the city’s budget under control, Reed then had some money to invest in more police and, what he wanted most, to reopen the sixteen recreation centers and swimming pools in the city’s most disadvantaged neighborhoods, which had been shuttered for lack of funds. “People were shooting dice in the empty pools,” he said. Local businesses have since funded some after-school job-skills programs in the reopened centers.

Of course we want to live better and not be too frugal.’
The building of social security systems in China and other emerging economies is one of the great challenges for the world economy. Few leaders in these countries are much impressed by the European welfare system. But they will have to provide. What would a Chinese National Health Service look like? Part of the spike in Chinese savings rates can be dated back to a pension reform that severely limited retirement payouts to state workers. Financial markets will need to develop to help the Chinese masses save and smooth their incomes over time.
In China, however, the experts refute the notion that high savings really are the problem. The flipside of the ‘savings glut’ in China that America complains about is the ‘investment famine’ in the rest of the world that China is only too keen to point out.

The worry is that attempts to regulate, to prevent such abuses, will now become a cross-border dispute, with the German government (and therefore the Troika) taking the side of the oligarch/German partnership against the public interest.
31 In the case of Greece, the historically tense relationship with Turkey makes cutbacks in military spending especially difficult, even though when Georges Papandreou was foreign minister, there was a serious rapprochement.
32 See John Henley, “ ‘Making Us Poorer Won’t Save Greece’: How Pension Crisis is Hurting Its People,” Guardian, June 17, 2015.
33 Matthew Dalton, “Greece’s Pension System Isn’t That Generous After All,” Wall Street Journal, February 27, 2015.
34 Whether part of the formal or implied contract is of secondary concern.
35 There is an exception: when pensions have been gratuitously increased after the work has been done. In that case, the worker has been given a “gift,” which was not part of the contract. Reducing, or even eliminating, the gift, in the presence of extreme budgetary stringency, may then make sense.
36 In February 2014.
37 There are other anomalous aspects of the demands for pension reform. Part of the problem that the pension system finds itself in is because it held Greek government bonds, which experienced significant write-downs as part of debt restructuring. Had the restructuring been done earlier (in 2010) and had the Troika not imposed such contractionary policies, the size of the write-downs would have been markedly less. Thus, the Troika itself is partly to blame for the problems in the pension system.
38 As we noted earlier in the book, part of what was going on was a hidden recapitalization of the banking system.
39 According to OECD data on long-term interest rates (rates for government bonds with 10-year maturity).
40 Whether the ECB would be willing and able to do whatever it takes when put to the test has been put into question by the constant haggling with its German board members—for example, over whether buying the bonds of a country in crisis is desirable, or even permissible.
41 Moreover, the bailout provides an opportunity for the short-term private creditors to take out their funds, leaving an even greater burden on the rest.
42 There are a few exceptions, which are worth noting.

Another came from the most famous example from our book – an image of a housefly etched near the drain in the urinals at Amsterdam’s Schipol airport which reportedly reduced ‘spillage’ by 80 percent – this was considered to be as good as it would get when it came to nudging. The other main criticism came from the political left, who worried that the Tories would use nudging as an excuse for avoiding tougher, presumably more effective policies. Fortunately, neither of these criticisms turned out to be well-founded.
A good example of the potential power of a gentle nudge is the pension reforms that in 2010 were being prepared for a roll-out in Britain under a plan devised by Lord Adair Turner. Under the plan, employers were required to automatically enrol workers into the plan, but employees were free to opt out if they wished to do so. Left-leaning sceptics thought that participation should be mandatory, and that the mere nudge provided by automatic enrolment would not suffice. These fears turned out to be misplaced.

In this view it wasn’t the riskiness of an individual stock or bond that mattered, but the way it fit in to a portfolio. By the mid-1970s, this approach had a name—modern portfolio theory—and was beginning to make slight inroads in the institutional investing world. Then Washington gave it a huge boost.
In the wake of several corporate bankruptcies that left pensions unpaid, Congress passed pension-reform legislation in 1974. The Employee Retirement Security Act has since gone on to have many interesting consequences. The first had to do with the standard of prudence laid down by the law and in subsequent regulations from the Department of Labor. No longer a legal concept based on tradition, prudence was redefined to mean following the scientific dictates of modern portfolio theory.8
IN THIS ACCOUNTING, RISK CEASED to be a vague, unquantifiable menace that could be tamed only with judgment.

Soon he was under investigation by the Los Angeles–based Organized Crime Task Force. Simultaneously, the Nevada Gaming Commission was investigating the man who actually ran the Stardust for the mob, Frank “Lefty” Rosenthal (aka “Ace” Rothstein, played by Robert De Niro in the Scorsese movie). Next, the Labor Department piled on, asking whether the Teamster loans to Glick violated a brand-new pension reform law implemented to curb abuses like those that had already plagued Beverly Ridge. Then, Nevada charged Glick with failing to report loans to his casinos.
Finally, Glick’s name surfaced in the investigation of the gangland-style execution of Tamara Rand, a fifty-four-year-old San Diego businesswoman whose safe deposit box was stuffed with $400,000 in crisp new currency. A former consultant to one of Glick’s companies, she’d sued him a year before her death after he allegedly refused to give her 5 percent of his gambling shares in return for more than a million dollars she’d loaned him.

pages: 772words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by
George R. Tyler

Though still low, the share of German women and men aged 60–64 working in 2009 was nearly double their share a decade earlier.16 And France, like the United States and Germany, has increased the threshold age for full retirement benefits for most to age 67 from age 65, and the early retirement threshold to age 62 from 60. The Hollande government last year allowed a few quite limited exceptions to those tougher standards (for those who began working careers as teenagers and the like). These reforms have worked. In combination with earlier pension reforms (1993, 2003), the net impact is projected by the French statistical agency Insee to increase the workforce there by two million employees by 2030.17
CHAPTER 26
INCENTIVIZING AND REWARDING WORK
“France’s labour force … has never had an international reputation as being work-shy.”1
CHRISTOPHER CALDWELL
Weekly Standard, November 2008
Critics of stakeholder capitalism might argue the superior work incentives of Reaganomics.

There are many others, however, who began work early and whose work is arduous or not very rewarding and who legitimately aspire to retire relatively early (especially since their life expectancy is often lower than that of more highly qualified workers). Unfortunately, recent reforms in many developed countries fail to distinguish adequately between these different types of individual, and in some cases more is demanded of the latter than of the former, which is why these reforms sometimes provoke strong opposition.
One of the main difficulties of pension reform is that the systems one is trying to reform are extremely complex, with different rules for civil servants, private sector workers, and nonworkers. For a person who has worked in different types of jobs over the course of a lifetime, which is increasingly common in the younger generations, it is sometimes difficult to know which rules apply. That such complexity exists is not surprising: today’s pension systems were in many cases built in stages, as existing schemes were extended to new social groups and occupations from the nineteenth century on.

A few months later, in a bid to appease a discontented electorate, parliament granted greater power to local government Click here on economic and cultural affairs, transport and further education. The constitutional reform also gave the green light to local referenda – to better hear what the people on the street were saying (though the first referendum subsequently held – in Corsica – threw up a ‘No’ vote, putting Paris back at square one; for details Click here).
Spring 2003 ushered in yet more national strikes, this time over the government’s proposed pension reform, which was pushed through parliament in July. ‘We are not going to be intimidated by protestors’ was the tough response of centre-right Prime Minister Jean-Pierre Raffarin, in office since May 2002. An extreme heatwave that summer, sending temperatures in the capital soaring above 40° and claiming 11,000 predominantly elderly lives, did little to cool rising temperatures.
* * *
SUITE FRANÇAISE
The story behind literary stunner Suite Française is as incredible as the novel itself.